That is absolutely right. We have been fascinated by this question, of course, stimulatedby the crisis but we looked into these questions even before the crisis became obvious. What are the financial linkages between the macro and micro sides? We find it intellectually stimulating to do this work and we will try our best.
The Deputy also asked whether we think the current approach is right. I think so given that the timeframe is limited, which is also quite appropriate. We have to do our work in private mainly in three months. It would not be productive to come to this committee frequently because we prefer to present the results once we have them and not as bits and pieces in between because that would not be a complete picture and, therefore, we believe that the process suggested to us is quite appropriate, including being here now and listening to the committee. That is very much part of the beginning of the process and then we report our results in public later.
One can talk for an hour on the question of how we got into the crisis and the different elements. I do not want to comment at this stage on Ireland but this is a western crisis involving Europe and the US. I was told in Asia in many times it is a western crisis. Some people anticipated the crisis. The Deputy said nobody knew about it; that is not quite true. After the fact, more people always say they knew but it is documented, for instance, that people in Bank for International Settlements in Basle in their annual reports of 2003, 2004 and 2005 wrote about these problems. Concerns were also expressed at the ECB and even at the European Commission. At the global level, about which we will talk a little in our report, a combination of several factors came together at the same time and they all contributed to the crisis. The crisis could never have been so deep if there were only one or two factors.
It could only become so bad globally, particularly in the western world, because there were failures in many respects. There were policy failures on the macroeconomic side. I am not talking about Ireland again; this is the global picture. Supervision regulation failed and the system was inadequate. There were some special developments, including global imbalance developments in Asia where exchange rates were fixed and current account surpluses and foreign exchange reserves accumulated. Money flowing back to the west kept interest rates low and inflation was relatively low temporarily because of technological progress and particular productivity gains. There were failures at the rating agencies and in the compensation system for bankers. It is a long list of factors that, unfortunately, all happened at the same time between the mid-1990s and 2007 and they pushed our economies and financial sectors in the same direction.
There were country specific developments on top of that and the Deputy mentioned some of the Irish ones, which we will return to in our report. It was a special situation. A few people talked about it early on, to be fair, but one also has to recognise that it is difficult for markets to decouple from such a global trend. If one bank says we are very much concerned about the risks and we see the risk but all our competitors seem to be ignoring the risks and it does not play the game, it will lose market share, or if one talks to a pension fund trader who says he does not want to do this because he thinks this will lead to a disaster in a year or two but he does not know when, and then he does not do the things done by all his competitors, he will lose his job. One needs to understand how market participants operate. This also means there is a strong role for the public sector because it has to set the incentives and the framework in which the market participants can operate. The herd instinct is very strong and one has to understand that. We will talk a little about all these issues in our report.
There was a question about whether Ireland would be better off outside the eurozone or leaving it now. I do not want to comment on that today. We may come back to that in three months but, in general, the euro has proven its worth during this crisis. The European Central Bank has done a tremendous job. Just imagine what the crisis would be like if we did not have the euro. We would have some 16 European central banks that would have to co-ordinate among themselves, negotiate with the Federal Reserve and set up swap arrangements with the Bank of England and China and Japan. It would be a nightmare. Co-ordination problems were already significant because so much happened in such a short period, but the ECB was very able in handling those problems. If that had to be done by 16 different central banks, it would have been much more complicated.
Countries that are not in the euro area, like the EU members in eastern Europe, all wish they were. I expect they will join during the next decade, depending on when they meet the criteria. Despite what I read in the Financial Times yesterday, I do not see any trend away from the euro, quite the opposite. The crisis has demonstrated the value of having a large monetary union in which there is some stability. On average, though not for Ireland, some 60% of the trade of EU countries is conducted within the EU area, for example in my own country, Germany. This is very helpful during turbulent times when more than half of foreign trade is not really affected by any turbulence.
Senator Quinn asked a question about Ireland that I do not wish to answer now, namely, whether Ireland can return to where it was before the crisis. We will have to consider that and what it means for competitiveness. He also asked about Singapore. It got through the crisis very well, but it was not alone. Basically, all of Asia came through quite well, including China, India and Korea. I was in India two weeks ago and discussed with the governor of the Central Bank of India the reasons he thought India came through the crisis better than many countries in the west. His answer was amazing. He said India's banks did not buy products they did not understand. He said the Indian Central Bank was also in charge of supervision and it did not allow the banks to do off balance sheet transactions and when housing prices went up too much they imposed lower loan-value ratios. These are all matters I have discussed now in the west. Some countries already did the right thing in the past.
I have seen similar systems in several Asian countries and their banking systems are much more healthy. That is why they are getting out of the crisis faster. They also went into an economic downturn — quite severe in some cases — not because their banking systems were weak, but because they felt the indirect effect of the collapse in world trade and were cut off temporarily from capital imports. This has now changed as world trade is recovering. Global capital flows are recovering and money is again flowing to emerging markets. These countries are recovering and because their banking systems are in good shape, they can recover faster than us. The recovery is not only Singapore, but it is a good example of a place where the right economic decisions are made. The Senator said they had soft touch regulation. That is correct in one way, but they also have a firm, clear system and do not allow certain practices that seem to be permitted in the industrialised world, including my country, such as creating CIFs and off balance sheet activities. It seems these were accepted in the west by supervisors. We will look into the Irish case in our report, but we could learn something from Asia in that respect, including from Singapore. In that sense, it was interesting to live there for a while and see how it handled the situation.
Deputy McGrath asked whether the process of inquiry here is appropriate and about the two stage process. I took it that this was as a result of Ireland's institutional set up and how Parliament operates and that this was what people here are used to. We did not question it, but took it as a given. I think it is quite a useful process. We do what is called a preliminary report, like the Governor, and that will then feed into more substantive investigation. That is quite appropriate in light of the problems that exist. The other issues the Deputy raised were more to inform us as a basis for our report. That is welcome. Did I forget anything?